Payments News Update – October 11, 2024
Legal and Regulatory Developments
SPOTLIGHT: Visa Expected to Temper Competitive Moves After DOJ Action
Payments Dive – October 3, 2024
Visa’s retail clients and fintech competitors may find their market positions strengthened in the wake of the federal government filing an antitrust lawsuit against the card network last week, industry players say.
Federal prosecutors alleged that Visa, the largest U.S. card network, established a monopoly in the U.S. debit card market by entering contracts with fintech rivals that enticed some to avoid competing with it, and threatening others with higher prices if they did. It acted similarly with merchant clients and bank partners, essentially coercing them into using its services, the lawsuit said. . . .
The Durbin Amendment Enters the Battle Over the Illinois Interchange Law
Digital Transactions News – October 8, 2024
Illinois Senator Dick Durbin is refuting claims by plaintiffs in the Illinois interchange lawsuit that federal banking laws, such as the Durbin Amendment, supersede state laws. The latest back-and-forth is part of an unfolding lawsuit challenging the Illinois Interchange Fee Prohibition Act.
In an amicus brief filed late Friday, Durbin argues that, while plaintiffs in the lawsuit contend the Illinois Interchange Fee Prohibition Act (IIFPA) “conflicts with, and is preempted by, the uniform federal standard for the permissible amount of interchange fees in the Durbin Amendment,” the amendment “creates no such federal standard that supersedes state laws which may further regulate interchange on debit card transactions.” . . .
Canada’s Interchange Cuts Empower Move Beyond Card Payments
American Banker – October 8, 2024 (subscription required)
The Canadian government is about to cut payment fees for small businesses by up to 27%, adding to international pressure on credit card companies to reduce what they charge users and find alternative sources of revenue.
Under the terms of a December 2023 agreement between Visa and Mastercard and Canada’s banking regulators that goes into effect Oct. 19, the card networks will lower interchange fees for in-store payments to an average of 0.95% and cut by 10 basis points from current levels for online payments. . . .
Judge Presses AmEx on Arbitration Push for Merchants
Law360 – October 7, 2024 (subscription required)
A Rhode Island judge on Monday expressed skepticism about American Express’ claim that it could force a proposed antitrust class action targeting the company’s swipe fee rules back into arbitration after the plaintiffs say it already defaulted on arbitration fees.
The two sides were in court virtually to argue American Express Co.’s motion to compel arbitration, but U.S. District Judge Mary S. McElroy repeatedly pressed the Cravath Swaine & Moore LLP attorney representing the credit card giant over why the company didn’t pay filing fees the first time merchants challenged the swipe fee rules through mass arbitration. . . .
Merchants Go to Court to Protect Illinois Law Banning Swipe Fees on Sales Taxes and Tips
Merchants Payments Coalition – October 7, 2024
Three Merchants Payments Coalition member associations have asked permission to take part in a lawsuit over Illinois’ new law banning credit card swipe fees on sales taxes and tips, saying merchants’ perspective is needed to understand the high cost the fees impose on small business and their customers.
“Banking groups have claimed this law would be burdensome for merchants and difficult to implement, but we can show that simply isn’t true,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said. “Merchants will be directly impacted by the outcome of this case and should be allowed to fully participate. Swipe fees on sales taxes and tips are a huge burden for small businesses and their employees, and ultimately drive up prices for consumers. This landmark law must be upheld.” . . .
Illinois Defends Swipe Fee Law as Banks Seek to Block It
Law360 – October 7, 2024 (subscription required)
The Illinois attorney general has urged a federal judge to reject a preliminary injunction sought by banking trade groups that have sued to block a first-of-its-kind state law restricting swipe fees, arguing the industry groups’ challenge fails on sovereign immunity and standing grounds.
Illinois Attorney General Kwame Raoul filed a dismissal motion and opposition to the plaintiffs’ bid for a preliminary injunction on Friday. The law at the heart of the suit is the Illinois Interchange Fee Prohibition Act, which would prohibit financial intermediaries from charging interchange fees on any sales taxes, excise taxes and tips included in a consumer’s payment card transaction with a merchant in the state. . . .
Opinion – The Backward Reasoning Behind Debit Card Fees
DC Journal – October 4, 2024
In a sweeping complaint, the Justice Department has made clear that Visa has bent the antitrust laws beyond recognition to monopolize the debit card network market. Visa’s actions are not only illegal, but the complaint gives a glimpse of just how ready the market is for the networks to be disintermediated.
From the start, the justification for debit card swipe fees has been a house of cards. Consider this thought experiment. A guest checks into a hotel and the front desk asks whether the guest would like to forego maid service during the stay. The guest says yes. The clerk says, “Great, then we’ll charge you an extra 2 percent per day during your stay.”
If this were to happen, you would likely be miffed. The reason is obvious. Your decision would save the hotel labor time and cost. They shouldn’t be charging you extra; they should be thanking you. Alas, what is evident in most commercial interactions is twisted beyond recognition in banking. . . .
Visa Hit With Merchant Class Action After US Justice Dept Antitrust Lawsuit
Reuters – October 2, 2024
Visa is facing a new lawsuit from U.S. merchants over its payments network, adding legal pressure on the payment card giant after the U.S. Justice Department filed a major antitrust lawsuit against it last week.
Advertising and marketing company All Wrapped Up Signs and Graphix filed the proposed class action on Tuesday in federal court in Manhattan, marking the first private antitrust case piggybacking on the sweeping claims lodged by the Biden administration.
The merchants’ lawsuit, like the Justice Department’s case, accused San Francisco-based Visa of paying would-be rivals not to develop competing networks, and threatening merchants with higher fees if they try to use other platforms to process transactions. . . .
Amex Sued By Merchants Over ‘Anti-Steering’ Rule
Law360 – October 1, 2024 (subscription required)
American Express violates federal antitrust laws by effectively preventing nearly all businesses that accept credit cards from incentivizing customers to use other cards with lower fees, a proposed class action alleges.
Three Massachusetts retailers say that Amex’s “anti-steering” rules for merchants cause fees to rise by preventing competition, but that the company has thwarted efforts to challenge the rules through a lopsided and unfair arbitration clause in its merchant agreement, according to the complaint, filed Monday in U.S. District Court in Massachusetts.
While about eight million merchants are part of the Amex “OptBlue” program, the policy prevents anyone accepting Amex — approximately 99% of all businesses that accept credit cards — from taking advantage of other credit card issuers’ policies allowing retailers to offer things like discounts if they use a particular card, according to the suit. . . .
Industry Developments
SPOTLIGHT: The Buying Power of Your Credit-Card Points Is Tanking
The Wall Street Journal – September 30, 2024 (subscription may be required)
Americans are racking up mountains of credit-card points. Inflation is eroding their value.
Cardholders built up a stockpile of points worth more than $34 billion in 2023, up 70% from 2019, according to annual reports from card issuers American Express, Capital One and JPMorgan Chase. But hoarding credit-card points is sort of like stuffing cash under a mattress. While cash in the bank or stock market can earn a return that offsets inflation, credit-card points can’t be invested.
Inflation starts to bite if you redeem your points through a card issuer’s portal, a common way people trade for cash, flights and hotel bookings. A point redeemed in a portal has long been worth about 1 cent, according to the credit-card issuers, and a penny has lost about 20% of its purchasing power since 2018, according to the Bureau of Labor Statistics. So those points have lost roughly the same. . . .
Fiserv, Wells Fargo to End Joint Venture
Payments Dive – September 27, 2024
Wells Fargo and payments processor Fiserv will end a joint merchant acquiring venture on April 1 of next year, resulting in an unspecified cash payment for Fiserv. Spokespeople for the companies declined to comment on the amount of the payment.
The Milwaukee-based processor, which inherited the joint venture when it merged with First Data in 2019, disclosed the news in a regulatory filing Wednesday. The company also noted it would record a non-cash impairment charge this year of between $400 million and $600 million related to the joint venture.
According to the filing, the two financial institutions will continue to work together despite the dissolution of the joint venture. The document says Fiserv and San Francisco-based Wells Fargo have entered into a multi-year agreement in which Fiserv will provide processing for current and future merchant clients. . . .
Wero Ramps Up as a European Account-to-Account Payments Provider and Heads to the Point of Sale
Digital Transactions News – September 27, 2024
European banks are beginning to roll out a new digital wallet called wero that initially provides account-to-account payments and is expected to be expanded to retail payments as well.
If so, wero could prove to be a competitive threat to Visa Inc. and Mastercard Inc., which dominate European payments, raising the ire of European bank regulators. But in the wake of previous failed ventures to establish a viable Europe-based cross-border payment network, wero’s success is far from guaranteed.
Wero is a venture of the European Payments Initiative, a Brussels, Belgium-based organization founded in 2020 and backed by 16 banks and financial-services companies. . . .